To obtain value for money many organizations utilize a collection of procurement methods to acquire materials and services. While the method used will depend on various rationale (spend or commodity for example), tendering is a key tool, typically used to foster competition and deliver business benefits.
Whilst tendering can be utilized for all sorts of commodities (direct and indirect) many businesses place criteria on where and how it is used. For example tendering can be well suited to the supply of certain products (its common in indirect spend). Tendering doesn’t guarantee success and the process is not without issues and businesses should consider these prior to launching a tendering initiative.
Tendering still requires robust business requirement.
Tendering doesn’t replace good business practice it complements it. Businesses still need robust clearly defined specifications/requirements. Without clarity on requirements (including detailed technical specification where applicable) it is difficult to ensure that the suppliers responding to the tenders can provide the right product or enable the buyer to carry out effective comparisons between suppliers. As ever with requirements definition it is worth investing as much time as available to develop requirements that are both robust and easily understood.
Don’t underestimate the supplier’s role in benefits realization – specifications must allow for innovation which may lead to further benefits.
Have a clear view of what the tendering process will achieve
Whether your organization is looking for the lowest price, shortest lead-time or in need of close affiliation with product experts it is imperative that you have a clear understanding of what you will achieve through tendering. Understanding what benefits are being targeted can help when designing your scoring process and in comparing suppliers.
With this in mind consider some initial research or dialogue with the market – find out if your tendering process will deliver benefits (or if another approach would be more suitable) – arm yourself with as much information as possible and select the most appropriate purchasing method.
Your tendering process is not just about unit cost.
Organizations must remember to focus on more than cost of the piece part, there are a variety of other factors to consider including methods of supply, quality, delivery schedules, sustainability issues, compliancy etc. Consider what’s important to you and develop a scoring/weighting system to compare suppliers.
Consider supplier approval requirements
A common issue is how to select which suppliers take part in your tendering process – consider your selection criteria for suppliers and consider how suppliers can pre-qualify before the tendering phase. Supplier approval can often be a complex process that requires various stakeholder input (Quality approval, technical review etc for example). This process can take time and there is a real likelihood that without a pre-qualifying process you may get suppliers responding to tenders who will not be accepted as an approved supplier thus wasting everyone’s time.
Consider also how many suppliers will be needed to achieve the benefits you are targeting, select a suitable number of suppliers to facilitate the competition required.
Consider stakeholder attachment to suppliers and buy-in to switching
Always communicate your plans to internal stakeholders and ensure that they understand that on completion of the tendering process suppliers may be switched. There are always those within an organization that can become emotionally attached to suppliers (often for very good reason). Get buy in that supplier switching will take place where benefits can be proven (be prepared to evidence these!). Try to understand intangible requirements which lead internal stakeholders to consider the incumbent supplier being the best option. Do this early as you can find yourself unstuck if on completion of the tendering process the business refuses to sign off a supplier change.
Risk Management
A thorough risk review is required – this should take into account QCD issues as well as information on the market and commodity. Consider mitigation requirements and how risk will be addressed in the supplier scoring phase and following contract.
Summary
Where tendering is appropriate and executed correctly it will typically yield benefits. Businesses should review all areas of spend and consider the benefits of competition. Tendering does have some common issues that need to be considered in order to make it a success, but these could be considered common purchasing issues that best practice should address anyway.
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One Response to “Common problems with the purchasing tendering process”
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